Figure: Profit Maximization in Monopolistic Competition (Figure: Profit Maximization in Monopolistic Competition) In panel A of the figure Profit Maximization in Monopolistic Competition, if the firm raises its price above P, it will:
A)lose all of its customers.
B)still have some customers.
C)not lose any customers.
D)gain many new customers.

Question

Figure: Profit Maximization in Monopolistic Competition    (Figure: Profit Maximization in Monopolistic Competition) In panel A of the figure Profit Maximization in Monopolistic Competition, if the firm raises its price above P, it will:
A)lose all of its customers. 
B)still have some customers. 
C)not lose any customers. 
D)gain many new customers.

Quizplus · Accepted Answer

In monopolistic competition, the firm faces a downward-sloping demand curve, which means that if the firm raises its price above the current market price (P), it will still have some customers willing to purchase its product, but it will lose some customers to competitors offering lower prices. Therefore, the best choice is B, which states that the firm will still have some customers if it raises its price above P.